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Will the GOP Tax Law Hurt Charities This Year?

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By Michael Rainey

November 27, 2018

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On this Giving Tuesday – an annual event that began in 2012 to provide a counterweight to the consumption-oriented frenzy of Black Friday and Cyber Monday – some charities are worried that they may receive fewer donations this year due to the Republican tax law that went into effect in January.

What’s new this year: The 2017 tax bill significantly increased the value of the standard deduction, reducing the tax payoff of donations for millions of potential supporters, and several studies have projected declines in overall charitable giving in the range of 5 percent. According to the Tax Policy Center, 15 million households will benefit from the charitable deduction in 2018 – a sharp decline from 36 million households in 2017.

It may already be happening: Richard Rubin of The Wall Street Journal says that charities are already seeing a difference: “Compared with last year, the number of donors dropped 4.3% while the value of donations increased 2.6% through Sept. 30, according to a study released Tuesday by the Association of Fundraising Professionals.”

The rich vs. the middle class: The tax law may simply accelerate a trend that has been happening for years: the rich have been giving more to charity, while the middle class has been giving less. Quentin Fottrell of MarketWatch says that, “In the early 2000s, households earning $200,000 or more made up only 30% of all charitable deductions. By 2017, this group accounted for 52%. And the percent of charitable deductions from households making over $1 million grew from 12% in 1995 to 30% in 2015, according to a study of tax filings by the Institute for Policy Studies, a left-wing think tank.”

But charity has its own rewards: No one really knows how sensitive charitable donations are to changes in tax law, and many people make donations based on need rather than economic considerations. As a result, it may take a few years to see the ultimate effect. “It’s a very individual basis, and we’re not going to know the answer to this until 2020 or 2021,” Robert Sharpe, a consultant who works for nonprofits, told the Journal. “Right now, only the most sophisticated people have talked to their advisers about the impact.”